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AGF dispute heats up

Star manager fires back, denying she was involved in move of investing team to rival


AGF Management Ltd.'s former star denies that she was involved in orchestrating the move of most of her investing team to a U.S. firm.

Toronto-based AGF is suing Patricia Perez-Coutts, as well as Dallas-based Westwood Holdings Group Inc. and New York recruitment firm Warren International Inc., for allegedly engineering the departure of key staff, and costing the Canadian fund company millions in lost business.

"All of us honoured our obligations and we look forward to clearing our reputations," Ms. Perez-Coutts said in a statement Thursday. "The entire team found AGF's claims not only surprising, but also very offensive."

The increasingly bitter dispute between Ms. Perez-Coutts and AGF highlights the crucial importance of key managers for fund firms. It also demonstrates the growing practice of "lift outs," in which an investment firm recruits an entire money-management team from a rival.

Ms. Perez-Coutts, who oversaw the top-performing AGF Emerging Markets mutual fund and related institutional accounts, left AGF with four members of her team in April to set up the Canadian unit of Westwood in Toronto. It has just opened shop.

AGF claims that the departing managers breached their employment contracts and is seeking $10-million in damages, according to a statement of claim filed in Ontario Superior Court.

The exit of its best-known manager is another blow to the fund company, which has suffered from an outflow of assets in recent years and has seen its stock price tumble. The current dispute is reminiscent of AGF's woes in 2002, when it was hit by a wave of redemptions after Charles Brandes, founder of San Diego-based Brandes Investment Partners LLP, stopped running global equity funds for AGF and set up a rival firm in Canada.

AGF says Westwood offered bonuses and other incentives to Ms. Perez-Coutts for securing the AGF team. None of the allegations has been proven.

In its statement of claim, AGF described the lift-out of the AGF team as an "unlawful conspiracy." Lift-outs are uncommon in Canada, but are part of the recruitment scene in the United States and Europe.

A lift-out can be a relatively cheap way for an investment firm to hire an already successful team of managers and analysts. It is typically less complicated and less expensive than acquiring a rival firm, dealing with redundancies and selling off extraneous businesses.

Ms. Perez-Coutts was a particularly attractive hire because she specializes in the popular emerging markets niche. "It's a very, very hot area," said Kathy Tompkins, a New York-based managing director of financial services recruiting firm Sheffield Haworth.

But lift-outs are "a very tricky and delicate thing to do," said Ms. Tompkins, a former employee with Warren International, which pioneered lift-outs of asset management teams in the United States. "You are dealing with multiple people, variables and different employment contracts. It's difficult to get everyone on board to move."

A lift-out reduces the time it takes for a firm to establish itself in a new market, because it allows the new employer to instantly capitalize on the strong history of an existing team rather than going through the long process of building a track record on its own. "If [a lift-out] is successful, it is immediately accretive to your business," Ms. Tompkins said. "You can immediately market that record."

Ms. Perez-Coutt has an enviable record. Over the decade ending March 31, her AGF Emerging Markets fund gained an average 11.1 per cent a year, outpacing the benchmark index. She also beat the 6.8-per-cent annualized gain of the Templeton Emerging Markets fund run by high-profile manager Mark Mobius.

That kind of return was attractive to Westwood, which has been trying to diversify its expertise beyond the United States to global equities. It could have developed an emerging markets specialty from scratch, but "they decided a better way would be look externally and snag a team that had a proven record," said Katie Reichart, a fund analyst at Chicago-based Morningstar Inc.

AGF Management Ltd. (AGF.B)

Close: $11.51, down 7¢

© 2007 The Globe and Mail. All rights reserved.

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